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Which of the following are least valuable in predicting the amount of uncollectible accounts for an organization? Answers A.Written forecasts from the credit manager regarding expected future cash collections. B.Total monthly sales for each of the past 6 months. C.Dollar amounts of accounts actually written off by the organization for each of the past 6 months. D.Published economic indices indicating a general business downturn. - - correct ans- - A.Written forecasts from the credit manager regarding expected future cash collections. During an investigation of unexplained inventory shrinkage, an internal auditor is testing inventory additions as recorded in the perpetual inventory records. Because of internal control weaknesses, the information recorded on receiving reports may not be reliable. Under these circumstances, which of the following documents provides the best information about additions to inventory? Answers A.Purchase requisitions. B.Vendors' statements. C.Purchase orders. D.Vendors' invoices. - - correct ans- - D.Vendors' invoices. What characteristic of information is satisfied by an original signed document? Answers
A.Reliability. B.Relevance. C.Sufficiency. D.Usefulness. - - correct ans- - A.Reliability. Which of the following evidence is the most reliable? Answers A.Hearsay from an independent source. B.Expert appraisal by audit client engineer. C.Original, signed contract corroborated by a bank's copies of checks. D.Evidence corroborated by engagement client management. - - correct ans- - C.Original, signed contract corroborated by a bank's copies of checks. Which of the following examples of audit evidence is the most persuasive? Answers A.Canceled checks written by the chief financial officer and returned from a bank. B.Time cards for employees that are stored by a manager. C.Vendor invoices filed by the accounting department. D.Real estate deeds that were properly recorded with a government agency. - - correct ans-
- D.Real estate deeds that were properly recorded with a government agency. Random numbers can be used to select a sample only when each item in the population Answers A.Is independent of outside influence. B.Is expected to be within plus or minus three standard deviations of the population mean. C.Can be identified with a unique number.
D.Provides a quantitative measure of sampling risk. - - correct ans- - D.Provides a quantitative measure of sampling risk. The use of probability-proportional-to-size sampling is inefficient if Answers A.Statistical inferences are to be made. B.Bank accounts are being examined. C.The number of sampling units is large. D.Each account is of equal importance. - - correct ans- - D.Each account is of equal importance. An important difference between a statistical and a judgmental sample is that with a statistical sample, Answers A.No judgment is required because everything is computed according to a formula. B.A smaller sample can be used. C.More accurate results are obtained. D.Population estimates with measurable reliability can be made. - - correct ans- - D.Population estimates with measurable reliability can be made. If an internal auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk? Answers A.The cost of performing auditing procedures on sample selections. B.The acceptable level of risk of making an incorrect audit conclusion. C.The adverse consequences of noncompliance. D.The experience and knowledge of the auditor. - - correct ans- - D.The experience and knowledge of the auditor.
The size of a given sample is jointly a result of characteristics of the population of interest and decisions made by the internal auditor. Everything else being equal, sample size will Answers A.Decrease if the internal auditor increases the tolerable rate of deviation. B.Increase if the internal auditor decides to accept more risk of incorrectly concluding that controls are effective when they are in fact ineffective. C.Double if the internal auditor finds that the variance of the population is twice as large as was indicated in the pilot sample. D.Increase as sampling risk increases. - - correct ans- - A.Decrease if the internal auditor increases the tolerable rate of deviation. In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the Answers A.Population. B.Sampling unit. C.Attribute of interest. D.Sample. - - correct ans- - A.Population. Assume the internal auditor becomes concerned that significant fraud may be taking place by dentists who are billing the health care processor for services that were not provided. For example, employees may have their teeth cleaned, but the dentist charges the processor for pulling teeth and developing dentures. The most effective procedure to determine whether such a fraud exists is to Answers A.Take a random sample of claims submitted by dentists and trace through the system to determine whether the claims were paid at the amounts billed.
Time frame limitations Final report distribution Answers A.2 and 3 only. B.1, 2, and 3 only. C.1 and 2 only. D.1, 2, and 4 only. - - correct ans- - B.1, 2, and 3 only. Before an assurance engagement can be performed, the auditor must identify appropriate criteria. The sources of such criteria are least likely to include Answers A.Benchmarks for the leading firms in the industry. B.Historical cost information for the processes examined. C.Best practices for another industry. D.Government regulations for the industry. - - correct ans- - C.Best practices for another industry. A work program for a comprehensive assurance engagement to evaluate a purchasing function should include Answers A.A focus on risks affecting the financial statements as opposed to controls. B.A statement of the engagement objectives for the operation under review with agreement by the engagement client. C.Procedures arranged by relative priority based upon perceived risk. D.Procedures to accomplish engagement objectives. - - correct ans- - D.Procedures to accomplish engagement objectives.
Field work is a systematic process of objectively gathering information about an entity's operations, evaluating it, and determining whether those operations meet acceptable standards. Which of the following is not part of the work performed during field work? Answers A.Applying the engagement work program to accomplish engagement objectives. B.Creating workpapers that document the engagement. C.Developing a written engagement work program. D.Expanding or altering engagement procedures if circumstances warrant. - - correct ans- - C.Developing a written engagement work program. Developing engagement observations, conclusions, and recommendations involves comparing the condition with the relevant standard or criterion. Which of the following choices best represents an appropriate standard or criterion to support engagement observations, conclusions, and recommendations? Answers A.A quality standard operating procedure (number and date) for the department. B.A sound industry practice, based on the internal auditor's knowledge and experience obtained during many engagement assignments within the organization. C.An internal accounting control principle, cited and copied from a public accounting reference. D.All of the answers represent an appropriate standard or criterion to support engagement observations, conclusions, and recommendations. - - correct ans- - D.All of the answers represent an appropriate standard or criterion to support engagement observations, conclusions, and recommendations. Writing an engagement work program most likely occurs at which stage of the engagement? Answers
Answers A.1, 2, 3, and 4. B.1 and 2 only. C.1, 2, and 3 only. D.3 and 4 only. - - correct ans- - C.1, 2, and 3 only. When conducting audit follow-up of a finding related to cash management routines, which of the following does not need to be considered? Answers A.Controls have been implemented to deter or detect a recurrence of the finding. B.The steps being taken are resolving the condition disclosed by the finding. C.Inherent risk has been eliminated as a result of resolution of the condition. D.Benefits have accrued to the entity as a result of resolving the condition. - - correct ans- - C.Inherent risk has been eliminated as a result of resolution of the condition. You are conducting an engagement to evaluate the organization's marketing effort. You agreed to keep the marketing vice president informed of your progress on a regular basis. What method should be used for those progress reports? Answers A.Oral or written interim reports. B.Written reports signed by the chief audit executive. C.Copies of working paper summaries. D.Briefing by the appropriate marketing first-line supervisor. - - correct ans- - A.Oral or written interim reports. The most appropriate use of an oral engagement communication is to communicate
Answers A.Matters that are not material. B.Conditions that demand immediate action. C.Complex matters to operating management when the possibility exists that misunderstanding would result from reducing them to writing. D.Sensitive matters to management when the chief audit executive does not want to commit them to writing. - - correct ans- - B.Conditions that demand immediate action. Communication skills are important to internal auditors. The internal auditor should be able to effectively convey all of the following to the engagement client except Answers A.The risk assessment used in selecting the area for engagement investigation. B.Recommendations that are generated in relationship to a specific engagement client. C.The engagement objectives for a specific engagement client. D.The evaluations based on a preliminary survey of an engagement client. - - correct ans- - A.The risk assessment used in selecting the area for engagement investigation. An internal auditing engagement communication disclosed a substantial annual loss to the organization because the purchasing department had no procedures manual. In light of this observation, which of the following actions should the internal audit activity take? Answers A.Take no further action, because the internal audit activity's duty is completed with the publication of the final report. B.Require that the purchasing department develop or otherwise obtain a suitable procedures manual, then check to make sure that they do so. The purchasing department's responsibility is to ensure that such a manual is in use. C.Make recommendations regarding the procedures manual, then perform a follow-up engagement to ensure that corrective action is taken or that senior management or the board takes the responsibility for not taking action.
The names of internal auditors present. The names of representatives of the audited function. An explanation of the analytical procedures the internal auditors will use to establish benchmarks for assessing activities. Review and sign-off of results to date. Answers A.1 only. B.1 and 4 only. C.1, 2, and 4 only. D.1, 2, and 3 only. - - correct ans- - C.1, 2, and 4 only. Recommendations in engagement communications may or may not actually be implemented. Which of the following best describes internal auditing's role in follow-up on engagement recommendations? Internal auditing Answers A.Has no role; follow-up is management's responsibility. B.Should follow up to ascertain that appropriate action is taken on engagement recommendations. C.Should request that independent auditors follow up on engagement recommendations. D.Should be charged with the responsibility for implementing engagement recommendations. - - correct ans- - B.Should follow up to ascertain that appropriate action is taken on engagement recommendations. An internal auditor's workpapers should be reviewed by the Answers A.Management of the engagement client. B.Management of the internal audit activity.
C.Audit committee of the board. D.Management of the organization's security division. - - correct ans- - B.Management of the internal audit activity. The chief audit executive is responsible for engagement supervision. The most important form of supervision during the field work phase of engagements involves Answers A.Appraising each internal auditor's performance at least annually. B.Making sure that communications are accurate, objective, clear, concise, constructive, and timely. C.Ensuring that the approved engagement work program is completed unless changes are justified and authorized. D.Providing suitable instructions to subordinates at the outset of the engagement and approving the engagement work program. - - correct ans- - C.Ensuring that the approved engagement work program is completed unless changes are justified and authorized. Which of the following best describes engagement supervision? Answers A.Supervision is a continuing process beginning with planning and ending with the conclusion of the engagement. B.Supervision is primarily exercised at the final review stage of an engagement to ensure the accuracy of the engagement communications. C.Supervision is most important in the planning phase of the engagement to ensure appropriate coverage. D.The manager of each engagement has the ultimate responsibility for supervision. - - correct ans- - A.Supervision is a continuing process beginning with planning and ending with the conclusion of the engagement. Engagement workpapers are reviewed to ensure that
D.Using the systems department's programmer to write an extraction program. - - correct ans- - A.Using a generalized audit software package. A new staff auditor was told to perform an audit in an area with which the auditor was not familiar. Due to time constraints, the audit was not supervised. The auditor was given the assignment because it represented a good learning experience, but the area was clearly beyond the auditor's competence. Nevertheless, the auditor prepared comprehensive workpapers and reported the results to management. In this situation, Answers A.The audit department violated the Standards by not providing adequate supervision. B.The Standards and the Code of Ethics were followed by the audit department. C.The chief audit executive (CAE) has not violated the Standards because they do not address supervision. D.The audit department violated the Standards by hiring an auditor without proficiency in the area. - - correct ans- - A.The audit department violated the Standards by not providing adequate supervision. Which of the following represents appropriate evidence of supervisory review of engagement workpapers? A supervisor's initials on each workpaper. An engagement workpaper review checklist. A memorandum specifying the nature, extent, and results of the supervisory review of workpapers. Performance appraisals that assess the quality of workpapers prepared by auditors. Answers A.2 and 4 only. B.1, 2, 3, and 4. C.1, 3, and 4 only.
D.1, 2, and 3 only. - - correct ans- - D.1, 2, and 3 only. Which of the following cannot be performed by an auditor using generalized audit software (GAS)? Answers A.Identifying missing check numbers. B.Correcting erroneous data elements, making them suitable for audit testwork. C.Matching identical product information in separate data files. D.Aging accounts receivable. - - correct ans- - B.Correcting erroneous data elements, making them suitable for audit testwork. When conducting a performance appraisal of an internal auditor who has been a below- average performer, an inappropriate procedure is to Answers A.Use objective, impartial language. B.Use generalizations. C.Document the appraisal. D.Notify the internal auditor of the upcoming appraisal several days in advance. - - correct ans- - B.Use generalizations. The primary purpose of operating a fraud hotline within an organization is to Answers A.Concentrate on areas that deserve attention. B.Measure how well organizational units are achieving the organization's goals. C.Reduce total costs of operations. D.Establish channels of communication for people to report suspected improprieties. - - correct ans- - D.Establish channels of communication for people to report suspected improprieties.
Internal auditors have a responsibility for helping to deter fraud. Which of the following best describes how this responsibility is usually met? Answers A.By evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk. B.By testing for fraud in every engagement and following up as appropriate. C.By assisting in the design of control systems to prevent fraud. D.By coordinating with security personnel and law enforcement agencies in the investigation of possible frauds. - - correct ans- - A.By evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk. A means of ensuring that payroll checks are drawn for properly authorized amounts is to Answers A.Conduct periodic floor verification of employees on the payroll. B.Witness the distribution of payroll checks. C.Require supervisory approval of employee time cards. D.Require that undelivered checks be returned to the cashier. - - correct ans- - C.Require supervisory approval of employee time cards. Internal auditors should have knowledge about factors (red flags) that have proven to be associated with management fraud. Which of the following factors have generally not been associated with management fraud? Answers A.Regular comparison of actual results with budgets. B.Generous performance-based reward systems. C.A management preoccupation with increased financial performance.
D.A domineering management. - - correct ans- - A.Regular comparison of actual results with budgets. When an internal auditor identifies multiple factors that have been linked with possible fraudulent conditions and suspects that fraud has taken place, the auditor should Answers A.Recommend an investigation. B.Immediately report to senior management and the board. C.Immediately report to the board. D.Extend tests to determine the extent of the fraud - - correct ans- - A.Recommend an investigation. A programmer's accumulation of roundoff errors into one account, which is later accessed by the programmer, is a type of computer fraud. The best way to prevent this type of fraud is to Answers A.Build in judgment with reasonableness tests. B.Independently test programs during development and limit access to the programs. C.Segregate duties of systems development and programming. D.Use control totals and check the results of the computer. - - correct ans- - B.Independently test programs during development and limit access to the programs. Which of the following is an indicator of increased risk of fraud? The controller Answers A.Takes no vacations and has refused promotion to vice president of finance. B.Takes all vacations and has refused promotion to vice president of finance. C.Takes no vacations and has just accepted a promotion to vice president of finance.
